The extract of statement of financial position for the year ended 30 June 2022 for Pears Ltd and Sapodille Ltd are as follows:
Extract of statement of financial position for the year ended 30 June 2022
Equity and liabilities Pears Ltd Sapodille Ltd
Equity $ $ Share capital ($ 1 Each) 487,500 420,000
Share premium 300,000 -
Retained earnings 262,500 337,500
Liabilities
Non current liabilities 187,500 75,000
Current liabilities 150,000 15,000
On 01 July 2021, Pears Ltd acquired 252,000 ordinary shares of Sapodille Ltd and as a result, Pears Ltd holds 60% shares in Sapodille Ltd. The purchase consideration was as follows:
• Cash paid $ 350,000
• A deferred cash settlement to be paid in four years’ time of $ 500,000
• By an exchange of two shares in Pears Ltd for every five shares in Sapodille Ltd. The market price of Pears Ltd share at the date of acquisition was $ 3.5 and the market price of each Sapodille Ltd share at the date of acquisition was $ 4.25
Legal fees associated with the acquisition were $ 155,000.
The discount rate of Pears Ltd is 15 %.
(a) Calculate the fair value consideration (Costs of investment) transferred to acquire control of Sapodille Ltd at the date of acquisition. Your answer should include a brief explanation if any of the above issue(s) is/are not required to be accounted in your working(s).